The FDIC board today approved two proposals for overhauling
assessments for its deposit insurance fund, including one that
would base the fees on banks’ liabilities rather than their
domestic deposits. The fee proposal, a response to the Dodd-
Frank financial-regulation law, would increase assessments on
banks with more than $10 billion in assets.

“This proposal achieves the goals of the Dodd-Frank Act to
change the assessment base to better reflect risks to the
deposit insurance fund,” said FDIC Chairman Sheila Bair. The
measure is subject to a 45-day comment period.

FDIC-member banks pay quarterly assessments for the
insurance fund, which guarantees deposits of as much as $250,000
per account when lenders are shut down. The fund, which fell
into deficit as bank closings soared in the wake of the 2008
credit crisis, had a negative $15.2 billion balance in the
second quarter.

Banks such as Bank of America Corp. and Citigroup Inc.,
which received billions of dollars in taxpayer aid to weather
the worst recession since the 1930s, would take a hit under the
assessment-increase proposal, said James Chessen, chief
economist at the American Bankers Association.

“The shift of this burden is so significant, it will cause
them to shift their funding strategy in order to manage it,”
Chessen told reporters after the FDIC meeting.

80 Percent

The measure would increase the largest banks’ share of
overall assessments to 80 percent from the present 70 percent,
the FDIC said. The assessment increase would be in place by the
second quarter of next year, according to the proposal.

“It’s a sea change in that it breaks the link between
deposit insurance and deposits for the first time,” Acting
Comptroller of the Currency John Walsh said today. “It is
significant.”

Custodial banks and so-called bankers’ banks would have an
exemption under the FDIC proposal.

Bankers’ banks, which rely heavily on short-term funding in
providing services to other lenders, would get exclusions for
some of their assets. Custodial institutions including Bank of
New York Mellon Corp. or State Street Corp. would get exclusions
for their lower-risk, short-term assets, the FDIC said.

Overall assessment fees collected would increase under the
proposal, requiring the FDIC to lower rates to make it revenue-
neutral, the agency said. Assessment rates will be lowered to
five to 35 basis points from the current 12 to 45 basis points,
the FDIC said.

The proposal would increase assessment rates on banks that
hold unsecured debt of other lenders. That step was proposed to
address risk that is retained in the system even as it is
removed from one bank’s holdings.

In a separate vote, the FDIC provided temporary unlimited
coverage for noninterest-bearing transaction counts through
December of 2012.